In business, several times it becomes necessary to have some forecast so that the management can take a decision regarding a product or a particular course of action. In order to make a forecast, one has to ascertain some relationship between two or more variables relevant to a particular situation.
For example, a company is interested to know how far the demand for television sets will increase in the next five years, keeping in mind the growth of population in a certain town.
Here, it clearly assumes that the increase in population will lead to an increased demand for television sets. Thus, to determine the nature and extent of relationship between these two variables becomes important for the company.
In the preceding lesson, we studied in some depth linear correlation between two variables. Here we have a similar concern, the association between variables, except that we develop it further in two respects.
First, we learn how to build statistical models of relationships between the variables to have a better understanding of their features.
Second, we extend the models to consider their use in forecasting.
For this purpose, we have to use the technique - regression analysis.